House committees have advanced a budget plan that prevents some cost shifts but still imposes new burdens on counties. As the plan moves to the Senate, counties will continue advocating for sustainable funding and revenue flexibility, with significant decisions still ahead.
Budget Framework Agreement: Setting the Stage for the BRFA
The Speaker of the House, President of the Senate, and the governor announced a budget framework Thursday, outlining a plan to address the State’s $3.3 billion shortfall through budget cuts, cost shifts, and revenue increases.
While this agreement sets the stage for the final budget negotiations, counties remain focused on the Budget Reconciliation and Financing Act (BRFA), which will determine how these decisions impact local governments.
Watch the joint press announcement and discussion from Thursday:
House BRFA Decisions
The House Appropriations and Ways and Means Committees have advanced the Budget Reconciliation and Financing Act (BRFA) of 2025, sending it to the House floor with over $1 billion in new state tax revenue and substantial cost shifts to county governments.
As previously reported on Conduit Street, MACo urged the General Assembly to reject over a quarter-billion dollars in proposed cost shifts to county governments. These provisions would burden counties unprecedentedly, forcing impossible trade-offs between tax increases and service cuts.
While counties successfully pushed back against some of the most harmful proposals — including a full teacher pension shift, cuts to local Program Open Space (POS) funding, and cuts to Enterprise Zone tax credits — the BRFA still shifts more costs onto counties without additional support.
Among the most significant shifts, the partial teacher pension shift stands out as the most impactful, along with a higher county share of SDAT funding, the phase-out of teacher retirement supplemental grants, and the requirement that counties pay for wrongful incarceration compensation.
Counties are partners in funding essential services, but shifting the State’s budget shortfall onto local governments is not a solution — it forces property tax hikes, service cuts, or both — pushing the burden onto residents and businesses instead of addressing structural budget issues.
Counties Already Carry the Weight of School Funding Shortfalls
In fiscal 2026 alone, counties will provide $1.4 billion more in local funding for public schools than the Blueprint’s mandated local share, according to an analysis by the Department of Legislative Services (DLS).
The state’s funding model has not kept pace with rising costs, leaving counties to fill staggering gaps in critical areas like:
- Special education – Underfunded by $1 billion annually,
- Student transportation – Underfunded by $500 million annually.
These gaps are not the result of county decisions but rather a state formula that does not reflect actual school system costs. The economic landscape has changed dramatically since the Blueprint’s enactment — COVID-19 disrupted long-term projections, inflation drove up costs, and federal funding uncertainty continues to loom.
Rather than updating its funding model, the state is shifting more costs onto counties — jeopardizing their ability to sustain local investments in education and essential services.
New Revenue Measures: What’s In and What’s Out?
Adopted Tax and Revenue Changes
The House BRFA introduces over $1 billion in new revenue, primarily from income tax increases on high earners, capital gains surcharges, and expanded sales taxes:
- Higher income tax rates for top earners – A 6.25% tax rate on income between $500,001 and $1 million and a 6.5% tax rate on income over $1 million, generating $344 million.
- Capital gains surcharge – A 2% surcharge on capital gains over $350,000, splitting revenue between the General Fund (1.25%) and the Transportation Trust Fund (0.75%), raising $367 million—double the governor’s original proposal.
- Sales tax on services and exemptions – A 3% sales tax on data and IT services, expected to generate $497 million, alongside new taxes on vending machine sales and repealing sales tax exemptions for certain advertising materials and high-value bullion/coins.
- Industry-specific tax increases – The sports wagering tax rises from 15% to 20% ($32 million), the cannabis sales tax increases from 9% to 12% ($39 million), and the House imposes a 3.5% excise tax on short-term car rentals ($47 million).
- Transportation revenue increases – The vehicle excise tax rises from 6% to 6.8% ($158 million), vehicle registration fees are accelerated ($51 million), the Vehicle Emissions Inspection Program (VEIP) fee jumps to $30 ($20 million), and titling fees double to $200 ($80 million).
Changes to the Governor’s Income Tax Proposal
The House amended the governor’s income tax plan by scaling back both fundamental elements affecting county revenues — the increase in the standard deduction is less dramatic, and the limits on itemized deductions are less severe.
As a result, the fiscal impact on counties is expected to be closer to neutral than in the original proposal. However, the Comptroller’s office has yet to release a full forecast. More details on the revenue implications will likely emerge in the days ahead.
Local Income Tax Flexibility: A Partial Win, But Not a Solution
Under the House plan, counties will now have the option to raise local income tax rates from 3.2% to 3.3% — a step toward greater revenue flexibility that aligns with MACo’s push for more local fiscal authority. This limited flexibility provides a tool, but not a solution, as counties grapple with growing State cost shifts and long-term budget pressures.
Counties Successfully Pushed Back Against Harmful Proposals
Counties fought back against several proposed revenue changes that would have hurt local economic development and job growth:
- Enterprise Zone tax credits preserved – MACo successfully advocated to protect State funding for Enterprise Zone tax credits, ensuring the House rejected efforts to phase them out. These credits remain a critical tool for economic development, particularly in areas struggling to attract private investment.
- Cuts to local Program Open Space (POS) funding rejected – The House rejected reductions to local POS funding.
State Cost Shifts: MACo Reduces Pension Shift, But Counties Still Take a Hit
While the BRFA raises state revenue, it also shifts significant financial responsibility onto counties, reinforcing MACo’s longstanding concern that the State expects local governments to take on more costs without the tools to manage them.
Teacher Pension Cost Shift
Counties avoided the full teacher pension shift (100% of the State’s year-over-year cost increases onto local governments). Instead, the House adopted a $97.7 million shift, significantly lower than the DLS-proposed $195.5 million. However, this still places significant new costs on counties without giving them any control over teacher salaries, pension investments, or benefit structures.
Counties already fully fund the employer share of teacher pensions, a cost transferred to local governments in 2012 after deep, complex negotiations. The BRFA seeks to offload the State’s unfunded liabilities entirely onto counties despite counties having no control over teacher salaries, pension investment performance, or the broader policies driving these liabilities.
SDAT Cost Shift: A Massive Unfunded Mandate on Counties
The House’s decision to force counties to cover 90% of the costs for SDAT — a state agency that counties do not control — is a clear example of bad policy and a blatant unfunded mandate. This shift dumps $21.2 million in new annual costs onto local governments while leaving counties powerless to influence SDAT’s staffing, operations, or spending decisions.
Counties rely on SDAT to fairly and efficiently assess property values — a core state function. Instead of funding its agency, the State offloaded these costs onto counties with no corresponding authority to improve or reform SDAT’s processes. This move violates fundamental principles of accountability and governance — counties should not have to pay for state-run services they cannot oversee or manage.
More importantly, counties rely on SDAT to provide fair and objective property assessments, ensuring accurate revenue collection. Increasing county responsibility for SDAT funding risks compromising this objectivity, placing assessment functions under the influence of local governments directly benefiting from property tax revenue — undermining public confidence in fair and impartial assessments.
Teacher Retirement Supplemental Grant Phase-Out
Under the House plan, the State will gradually eliminate the teacher retirement supplemental grant, cutting funding in half in fiscal 2026 before entirely phasing it out in fiscal 2027. This shift will place a $13.8 million financial burden on counties, forcing them to absorb these costs or adjust their budgets to compensate for the loss. The new shift is a double-whammy, as it comes on top of existing education funding mandates, further straining county budgets and complicating long-term financial planning.
Unjust Burden: Wrongful Incarceration Compensation Shift
Counties must now cover half the cost of settlements for wrongfully convicted individuals despite having no role in the convictions, sentencing, or exoneration decisions that lead to these payments. This cost shift forces counties to shoulder financial responsibility for State-level judicial actions, diverting local funds from essential services. The mandate imposes a new and unfunded burden on county budgets without providing any means for local governments to influence or mitigate the costs.
What’s Next?
With the BRFA on the House floor, counties will continue fighting against cost shifts and advocating for county priorities.
Once the House passes its version, the Senate will take up the BRFA for further debate. MACo remains fully engaged to ensure counties are not left shouldering an unsustainable fiscal burden — especially as they increasingly fill gaps where State funding falls short.
Stay tuned to Conduit Street for more information.
Useful Links
Budget Reconciliation and Financing Tally Sheet for the House
